Diageo Linked With $2bn Jose Cuervo Bid

After building up a strong war chest of cash over the past few years, the world’s largest spirits company by sales Diageo is in the market for deals. Having recently acquired Turkey’s leading raki producer Mey Icki for GBP1.3bn, Diageo is being linked with a US$2bn bid for Mexican tequila brand Jose Cuervo and a US$500mn move for Polish spirits company Stock .

Given that tequila is one of the fastest growing spirit categories in a number of important markets and that it makes up a small proportion of Diageo’s business, buying Jose Cuervo – which it already distributes globally – would add another powerful global brand to an already stellar portfolio that includes the likes of Johnny Walker and Smirnoff. Tequila sales contributed just 3% to Diageo’s net sales by category in the year to June 2010, compared to 11% from vodka and 27% from scotch. Margins are clearly stronger when you own rather than distribute brands.